Turuk Oil and Gas

U.S. oil demand sets records as industrial recovery surges

America's oil consumption has skyrocketed to unprecedented heights, a dramatic turnaround from only a year ago, when the epidemic knocked the US economy into a tailspin and decimated demand.

In the week ending July 2, a rolling average of total oil products provided in the United States – a measure of consumption – reached the highest seasonal level in official statistics dating back three decades.

While gasoline and diesel demand have returned to pre-pandemic levels, a surge in petroleum use for commodities such as plastic, asphalt, lubricants, and other industrial requirements is driving the recovery. Other types, as well as gasoline and diesel, contribute to the economy's improvement.

The demand rebound comes with jet fuel use still 24% below July 2019, suggesting markets could tighten even further, and prices could climb higher, when air travel normalizes.

With the OPEC+ coalition unable to agree on an agreement to raise production and American shale producers preferring fiscal restraint over output growth, the rebound in US consumption threatens to aggravate a global supply shortfall. The increase in demand comes despite the fact that jet fuel consumption is still 24 percent lower than in July 2019, implying that markets might tighten even more and prices could rise much higher when air travel resumes normalcy.

In the decade after the development of fracking technology, which resulted in an increase in oil and gas output as well as low-cost natural gas liquids, petrochemical companies invested substantially in manufacturing in the United States. As a result, there has been a recent surge in plastic production in the United States' Gulf Coast.

Aside from gasoline and diesel, other goods with increased use include butane for gasoline blending and lubricants for heavy machinery. Propane consumption has also increased, with Americans who have been stranded at home during the epidemic cooking more than ever.

The petroleum market will stay tight for months, with US weekly output hovering around 11 million barrels per day for months, or roughly 2 million barrels less than it was in early 2020, and OPEC+ not adding any supply until August at the earliest.

In the week leading up to the Fourth of July holiday, weekly gasoline supply set a new high, according to EIA statistics. The rolling average of diesel supply hit its highest level for the week since 2017, at 4.07 million barrels per day.